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Busch: Political Cover for Debt Ceiling Deal

Tuesday, 28 Jun 2011 | 11:13 AM ET

Today in The Hill, the leaders of President Obama's deficit reduction commission wrote an Op-Edthat provides a window of opportunity for both sides to compromise.

While the President did ignore the commission's recommendations, Bowles and Simpson may prove to be useful yet as they argue for a $2 trillion down payment on the deficit to get agreement to raise the debt ceiling.

"....a two-part approach seems sensible, where policymakers agree to a large down payment now and follow it with more significant and structural reforms in the near future. For this to work, though, the down payment must be large - in the vicinity of $2 trillion - and it must at least begin to address entitlement growth."

The Bowles-Simpson commission had recommended over $4 trillion in deficit reduction, but they feel now that is a bridge too far in the short amount of time necessary to raise the debt ceiling before August 3rd.

Jonathan D. Colman

The current rumors on the negotiations surround cuts to the Defense Department from the Republicans, cuts to benefits from Obama and changes to tax laws like LIFO from Democrats.

Yesterday, President Obama met with Senate leaders from both parties and this follows his round of golf with Speaker of the House John Boehner.

Both sides need to partake in educating the voters as to the choices and why the current spending is unsustainable. The more light that is shone on the negotiations; the more likely there will be a smooth process.

To me, the most likely outcome will be a raising of the debt ceiling in time for the August 3rd payment. However to mollify the Tea Party members, Republicans are likely to make it a two or three step process. This translates into passing a temporary extension of the debt ceiling that lasts 60 days and then agreeing to come back to try again for a longer, larger agreement that will take the issue beyond the 2012 election.

Make no mistake; this will be the central issue of 2012. Ultimately, the nation will have to decide what future it wants to have and which vision to follow. For the markets, the higher the ratio of spending cuts to tax increases will be a positive for the United States longer term growth.


Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.

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